Company Perspectives:

Lowe's is a specialty retailer--a one-stop destination center for all of our customers' home improvement needs. We serve the do-it-yourself, consumer durables, and building contractor businesses. Lowe's operates over four hundred stores in 24 states. Each store caters to retail customers, repair and remodeling contractors, and new construction contractors by combining the merchandise, sales, and service of: a home fashions and interior design center; a lawn and garden center; an appliance and home electronics dealer; a hard goods discounter; a hardware store; an air conditioning, heating, plumbing, and electrical supply center; a building materials supplier.

Company History:

Lowe's Companies, Inc., is the second-largest home improvement retailer in the United States (trailing Home Depot Inc.), holding about six percent of the $140 billion home improvement market. More than 400 Lowe's stores in 24 states--mainly in the Midwest and Southeast--serve the do-it-yourself home improvement, home decor, home repair, and home construction markets. Primarily located in small and medium-sized markets, Lowe's stores average more than 75,000 square feet; this average is growing, however, as the company now typically builds 100,000-square-foot units in smaller markets and 114,000-square-foot units in larger markets.

Early History

In 1921 L. S. Lowe opened a hardware store in the small town of North Wilkesboro, North Carolina. Following his death, his son, James Lowe, took over the business. James Lowe and his brother-in-law, Carl Buchan, served in the U.S. Army during World War II, and during this period Lowe's sister and mother ran the business.

When Buchan was wounded and discharged from the army in 1943, he returned to North Wilkesboro to help operate Lowe's hardware business. In 1946 Buchan took a 50 percent interest in the store. Buchan quickly sold out much of the store's inventory. He then reorganized the store, which became a wholesale-style seller of hardware and building supplies.

When Lowe was discharged from the army, he returned to aid Buchan in operating the business. The two opened a second store and used profits to buy an automobile dealership and a cattle farm. In 1952 Buchan traded his interests in these two businesses for Lowe's interest in their two stores. Three months later, Buchan opened a third store, in Asheville, North Carolina. Also in 1952 the company was incorporated as Lowe's North Wilkesboro Hardware, Inc. From 1952 to 1959, Buchan expanded operations, and sales increased from $4.1 million to $27 million. The post-World War II construction boom made the hardware business very profitable. The frenzied demand for supplies meant that sales often were made directly from a freight car on the railway siding that ran by the store. By purchasing stock directly from the manufacturer, Lowe's was able to avoid paying the higher prices set by wholesalers, which meant lower prices for customers. By 1955 Buchan had six stores.

Rapid Growth During the 1960s and 1970s

The big push to become a major force in the home-building market came in 1960 when Buchan died and an office of the president was created. The company went public in 1961 and was renamed Lowe's Companies, Inc. Even though the company grew and new locations were added, the layout of the stores remained basically the same: a small retail floor with limited inventory and a lumberyard out back near the railroad tracks. The bulk of Lowe's customers were contractors and construction companies. By the late 1960s, Lowe's had more than 50 stores, and sales figures hovered around the $100 million mark.

About this time, the burgeoning do-it-yourself market was beginning to change the face of the construction industry. The rising cost of buying a home or having one remodeled by a professional led more homeowners to take on construction projects themselves. Home centers were becoming the modern version of the neighborhood hardware store. At the same time, the home building market was experiencing periodic slumps, and Lowe's management began to notice that their sales figures were moving up and down in tandem with housing trends.

In spite of the fluctuations in the housing market, however, Lowe's revenues rose from $170 million in 1971 to more than $900 million by 1979 (when there were more than 200 stores in the chain). This was due in large part to Lowe's financing program that helped local builders get loans, coordinated building plans with the Federal Housing Administration (FHA), and then helped contractors fill out the government forms and trained construction companies to build FHA-approved homes.

Began to Target Consumers in Late 1970s

When new home construction virtually came to a standstill in the later part of the 1970s, Lowe's made the decision to target consumers. The management team believed that increasing consumer sales would reduce the company's vulnerability during economic and seasonal downswings. In 1980 housing starts decreased, and Lowe's net income fell 24 percent. While studying the track records of do-it-yourself stores that sold solely to consumers, Lowe's found that these stores were recording strong sales even during the home-building slumps.

Robert Strickland came to Lowe's fresh from the Harvard Business School. Rising steadily through the ranks, Strickland had reached the position of chairman of the board in 1978 and, with newly appointed Lowe's President Leonard Herring, spearheaded the decision to attract consumers in a big way. Using the easily recognizable acronym RSVP (standing for retail sales, volume, and profit), Lowe's embarked on the new marketing strategy. A consultant was hired to remodel the showrooms, and the resulting layout was similar to that of a supermarket. Seasonal items, such as lawn mowers, were placed in the front of the store. The traffic pattern drew customers to the interior decorating section, then moved on to the back of the store where traditional hardware materials were displayed. The theory behind this traffic pattern said that most consumers may come for the basics but, by walking through the other departments, end up purchasing more. The store in Morganton, North Carolina, was the first location remodeled under the RVSP plan.

In another aspect of the redesign, poster-sized photographs depicting Lowe's merchandise as it would look in the consumer's home were used to identify departments rather than lettered signs. Product lines were updated, hours were extended, and advertising was increased. The strategy worked; by 1982 sales had reached $1 billion, and when the figure reached $1.43 billion in 1983, it marked the first time that Lowe's had made more money selling to consumers than to contractors.

One aspect of the RSVP plan that did not work was Wood World, an extension of the retail floor into one long bay of the lumber warehouse. Fire code regulations required the installation of expensive fire walls and doors, and the idea was soon scrapped. Paneling and other wood products were then put out on the sales floor with the rest of the merchandise.

Shift to Warehouse-Style Stores in Late 1980s

By the late 1980s the retail scene in the United States had once again been transformed, and the era of the "big-box" warehouses had begun. Home Depot Inc. led the way in the home improvement sector and its aggressive expansion of its 105,000-square-foot home-improvement superstores quickly moved the upstart past Lowe's and other competitors into the number one position. Lowe's, meanwhile, had surpassed the 300-store mark in fiscal 1989 but those stores averaged barely more than 20,000 square feet. The company had opened some larger units in 1988--including a 60,000-square-foot store in Knoxville, Tennessee, a 40,320-square-foot unit in Boone, North Carolina, and a 60,480-square-foot store in North Chattanooga, Tennessee--but none approached the size of a Home Depot. Lowe's also made some adjustments to its products lines as core consumer goods areas--hardware, tools, paint, plumbing, home decor, and stereo equipment--were expanded, while such fringe items as exercise equipment, bicycles, and bath linens that had crept in over the previous decade were phased out.

Beginning in 1989 Lowe's began a formal shift from being a chain of small stores to being a chain of large, warehouse-style stores, with the company fully committing itself to this change in 1991. During that year, the company took a $71.3 million restructuring charge in order to accelerate the chain conversion. The charge covered the costs of closing, relocating, and remodeling about half of the company's stores, during the period from 1991 to 1995. Over the course of the four-year restructuring, the size of the new or remodeled stores crept upward from 45,000 square feet to 85,000 to 115,000. The largest size was to be reserved for Lowe's stores built in larger markets, such as Greensboro, North Carolina, while in the smaller markets the company traditionally served Lowe's eventually aimed to build 100,000-square-foot units. All of the larger stores featured huge garden centers, as big as 30,000 square feet in size. Overall, Lowe's aimed to generate more of its sales from consumers, while at the same time continuing to serve contractors. And it also continued to sell major appliances and home electronics (including home office equipment, which was added to the mix in 1994), two categories usually absent from Home Depot stores.

From 1991 to 1993, the company concentrated almost exclusively on the restructuring and made only modest expansion moves, gaining toeholds in Maryland, Indiana, and Illinois for the first time. Although the chain added only five stores overall during this period, total square footage increased from 8.02 million in 1991 to 14.17 million in 1993, translating into an increase from 26,000 in average square footage to 45,500. In 1994 and 1995 Lowe's added 54 more stores, bringing the total to 365, and adding the states of Iowa, Michigan, and Oklahoma to its territory. Also in 1995, the company began to aggressively expand in Texas, going from two stores in 1994 to 23 stores in 1996. Lowe's also expanded into the state of New York in 1996 and into Kansas in 1997. Meanwhile, in August 1995 Herring retired and was succeeded as president and CEO by Robert L. Tillman, who had served as chief operating officer.

By 1996 there were more than 400 Lowe's stores, averaging more than 75,000 square feet per unit. Sales had nearly tripled since the restructuring was announced in 1991, increasing from $3.1 billion to $8.6 billion. Net earnings reached a record $292.2 million in 1996. With more than 70 percent of its stores now "big boxes," Lowe's began to concentrate more on expanding into new territory in the mid-1990s, aiming to reach the 600-store mark by century-end (about 40 stores were to be added during 1997 alone). During the final years of the 1990s, the company planned to spend 80 percent of its capital expenditures on building new stores, some of which were planned for large metropolitan areas, such as Atlanta's--territory traditionally shunned by the chain. It was clear that Lowe's, which had thus far managed to thrive--not just survive--in the cutthroat home improvement world of the 1990s, was determined to bolster its number two position and to cut into Home Depot's lead.